Dáil Éireann Debate, Thursday - 26 June 2014
69. Deputy Michael McGrath asked the Minister for Finance his views on the anomaly that a person with earnings of €18,304 who receives a €1 increase in his or her annual income will see his or her take home pay reduce by €731; and if he will make a statement on the matter. [27779/14]
View answer70. Deputy Michael McGrath asked the Minister for Finance if he has discussed with the Department of Social Protection the issue of the poverty trap that exists when employees enter the PRSI net and all of their income becomes liable for PRSI; and if he will make a statement on the matter. [27780/14]
View answer71. Deputy Michael McGrath asked the Minister for Finance the effective tax rate paid by a PAYE worker earning €18,000 per annum taking into account income tax, universal social charge and PRSI liabilities; and if he will make a statement on the matter. [27782/14]
View answer72. Deputy Michael McGrath asked the Minister for Finance the effective tax rate paid by a PAYE worker earning €19,000 per annum taking into account income tax, universal social charge and PRSI liabilities; and if he will make a statement on the matter. [27783/14]
View answerI propose to take Questions Nos. 69 to 72, inclusive, together.
I assume the Deputy is referring to the "step" effect in the PRSI system which brings all income into charge once the relevant threshold is reached. This occurs because those earning €352 per week are exempted entirely from the charge whereas those who earn more than this pay PRSI at 4% on their full earnings. This results in an anomalous situation whereby those earning between €353 and €372 per week have a lower take home pay than someone on €352 per week. While such an effect is never ideal, it is necessary to achieve the desired yield, which in itself contributes to keeping workers on incomes lower than the threshold to remain outside the charge to employee PRSI entirely.
The effective tax rate including full PRSI and the USC is estimated to be 4.9% for a single individual earning €18,000 per annum and 10.0% for a single individual earning €19,000 per annum. This differential in the two rates is mainly due to the step effect. However, it must be acknowledged that the level of the effective tax rate is still very low in international terms. A single individual earning the equivalent of €19,000 in the United Kingdom pays an effective tax rate of over 12.5%. According to the recent OECD publication, Taxing Wages 2014, Ireland has the lowest tax burden among OECD EU member states on single earners at the average wage in 2013. Furthermore, Ireland has also has the lowest tax wedge among OECD EU member states (6.8%) for one-earner/two children families at the average wage. The average for OECD countries was 26.4%.
The Advisory Group on Tax and Social Welfare (AGTSW), which includes officials from both my Department and the Department of Social Protection, are considering a range of tax and social welfare issues, with a view to increasing the incentives for individuals to return to work. It is expected that the Group will publish its report later this summer and I anticipate its recommendations will form a useful addition towards informing upcoming budgetary deliberations.
